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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 231.26

-0.5%

2:24 PM EST

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To: Jan Crawley who wrote (18050)	9/23/1998 5:37:00 PM
From: Rob S.	Read Replies (1) of 164684

Another stock to look at is Excite. XCIT rocketed today on the news of the deal with DELL (gee, that rhymes!) XCIT moved up 9 3/8 to 39 3/4 (33%). The all-time high was at 55 1/2. That brings up an options trading strategy that can work for a few of the inets: Sell calls at one strike price that is near or just outside the resistance band set by the previous high trading range. Buy calls at a lower strike that is nearer to the bottom of the high trading range. Here's how that might work for XCIT (you can figure it out for NZMA): (Note: XCIT and other inets will likely get hyped up to higher prices during the next few days so these numbers may soon look conservative). BUY 10 NOV 40 XCIT CALLS at 5.25 = 5,250 SELL 40 NOV 50 XCIT CALLS at 2.25 = 9,000 initial Net 3,750 Analysis: You are betting that the stock will not penetrate the previous resistance level before the NOV expiration. The price needs to move past 54.5 before the strategy turns negative: At 54.5 at expiration, you are out $9,000 from the sale of the 50 calls as you are forced to buy the stock at 54.5 to cover. You are up $9,250 on the NOV 40 calls as you pick up the 1,000 shares at net 45.25 and sell them at 54.5. The net/net of $250 pays for your discount broker's commissions. If the stock does not violate the resistance level or pulls back long enough for you to cover the short position, you are up. The Max gain is if the stock moves up exactly to 50 at expiration. There you make $4,750 from the purchase of the 40 calls plus the $9,000 premium you pocket on the sale of the 50 calls. This type of strategy is aimed at taking advantage of the relative disparity in the pricing between the options at the different strikes. Sometimes you see even better examples - situations in which the premiums at the lower strike are only marginally higher than the premiums at the higher strike. An associate has even found situations in which the lower strike had a higher premium - probably because someone left an order on the books as the stock began a move. That good of an arbitrage situation can't be expected in highly followed stocks, such as the inets. I didn't sell any additional calls today. I expect some follow-through as the leaching brokers pour the heat on the sector in the next few days. Go mighty leaches!!! Pay for those Mad Avenue penthouses!!! We live in interesting times!

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